Italy's 10-year bond yields rose to 4.87 percent on Tuesday from 4.448 percent at the close on Monday. The spread between safe-haven German bunds and Italian bonds jumped 57 basis points to 336 basis points.

Italy also went ahead with a 6-month T-bill auction, selling 8.75 billion euros, but yields jumped to the highest level since October 2012.

The average yield at the auction was 1.237 percent, up from 0.731 percent at the end of January.

In addition, Italy's market regulator said it was monitoring exchanges and would use all instruments to calm volatility.

The election results gave the center-left coalition led by Pier Luigi Bersani, a slim majority in the lower house. But no party won enough seats in the upper house, the Senate, where 158 seats are needed to govern.

Bersani's alliance won 119 Senate seats while Berlusconi's center-right took 117 seats, according to Reuters.

The anti-austerity and anti-Europe protest movement led by comedian Beppe Grillo won 25.5 percent of the vote for the lower house, just edging out Bersani's Democratic Party, which won 25.4 percent.

Most analysts however said the crisis, while severe, was likely to be kept under check by the European Central Bank [ECB], which promised last year to use a new bond-buying program to rescue any country in need of aid.

"The fallout in the markets, while already significant, is very unlikely to be as severe as previous bouts of market turmoil because of the reassurance provided by the ECB's fiscal backstop," Nicholas Spiro of Spiro Sovereign Strategy wrote in a note to clients.

"However, the anti-establishment and anti-austerity backlash in Italy presents the biggest challenge to the eurozone's austerity-focused policies since the crisis erupted in 2010."

Berlin Reacts

Germany has so far been careful not to react to the election results, given the political anger in some parts of Italy about Berlin's demand for austerity.

But on Tuesday, Germany's foreign minister Guido Westerwelle said Italy should continue on the path of fiscal consolidation.

It was in the interests of both Italy and Europe to establish a stable government, Dow Jones quoted him as saying.